Tag: RBI

CII wants RBI to review circular on appointment of bank, NBFC auditors, BFSI News, ET BFSI

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Industry chamber CII has asked the Reserve Bank to review its circular on appointment of auditors for banks and NBFCs saying it was inconsistent with the provisions of the Companies Act and would create hardship for businesses in times COVID.

The Reserve Bank in its circular on April 27, 2021 imposed various restrictions on appointment of auditors by banks and NBFCs and prescribed a cooling off period for re-appointment.

Urging the RBI to review the circular, the Confederation of Indian Industry (CII) said the proposals “will cause significant hardship to the companies, its stakeholders as well as industry in general”.

The chamber said that few matters that warrant an immediate attention of the RBI include a clarification that the circular is only intended to cover banks and NBFCs and their respective audit firms.

“The RBI may not apply the same principles to the commercial banks and NBFCs, including in respect of cap on maximum number of audits, mandatory joint audits, and rotation/cool off principles. The NBFCs may continue to be governed by the Companies Act, 2013,” it said.

It also suggested to re-consider severe restrictions on capacity and eligibility requirements, limit on number of audits, maximum engagement period of 3 years and 6 years cool off period after rotation.

“The RBI may consider aligning them with the provisions in the Companies Act, 2013. The RBI may still achieve its objectives, without diluting any of the principles,” it said.

The chamber further asked for review of definition of related parties, which as per the circular include the group entities using a common brand name as this has far reaching implications and unintended consequences; and restrictions on audit/non-audit services during one year before/after the appointment as auditors of a bank/NBFC, covering the entity and its group entities.

“These provisions may create severe capacity constraints, without adding any qualitative parameters,” CII said, requesting the RBI to help in facilitating an effective implementation of regulation, without disrupting the ease of doing business.

It also said that a sudden change in major policies, without any reasonable transitional provisions, is bound to create several practical challenges in successful implementation.

“It should also be noted that appointment of auditors is a critical and important process for an organisation and merits right level of attention especially from senior management, board and audit committee, and approval from RBI,” CII said.

It added that all these amendments will create inconsistent policies without adding any qualitative parameters.

“It is all the more challenging in present times, severely impacted by COVID-19, to implement these requirements without any transitional provisions,” it said.



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Why PMJDY must be scaled up to next level

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The Pradhan Mantri Jan Dhan Yojana (PMJDY) should be scaled up to the next level to provide access to formal credit and push digital transactions further, according to experts.

Launched under the National Mission for Financial Inclusion in August 2014, the Jan Dhan scheme has now been labelled as the largest financial inclusion scheme in the world, with over 42.3 crore no-frills accounts (beneficiaries) and a total balance of ₹1,44,169 crore as on May 12.

Of the total beneficiaries, about 28 crore are from rural- and semi-urban areas and over 50 per cent are women.

The flagship scheme of the Centre has resulted in almost every household having access to formal banking services, along with a platform for availing low-value credit, insurance and pension schemes, and a delivery channel in emergency situations such as the Covid-19 pandemic.

Notwithstanding these gains, it is the need of the hour to scale up the scheme to the next level to reap complete benefits of financial inclusion and digital advantages achieved so far.

Digital push

“With Aadhaar and minimal documents, the digital identity is established for the creation of Jan Dhan accounts,” D Janakiram, Director, Institute for Development and Research in Banking Technology (IDRBT), an arm of the RBI, told BusinessLine. Once the bank account is linked to the UPI (unified payment interface), this enables mobile payments with a number of third-party apps, including Google Pay.

“The sheer convenience of cashless payments using mobile phones has enabled a large number of people to adopt digital payments during the pandemic. UPI has witnessed manyfold increase in terms of the number of transactions in recent times, touching a few billion transactions per month,” said Janakiram.

First objective

According to Janakiram, the Jan Dhan scheme has achieved the first objective of creating digital identity, but there is a need to scale up the digital infrastructure to reduce costs per transaction. At the moment, the number of ATM withdrawals for these accounts is kept at four in a month, which leads to heavy cash withdrawals and cash transactions. “If there is no limit for ATM withdrawals in a month (which can happen only when costs per transaction reduce drastically, which will need technology adoption, including cloud adoption), speculative cash withdrawals will reduce,” he observed.

“The economy also needs to move from financial inclusion to financial empowerment, which means we need to transform Jan Dhan accounts into Jan Dhan Vriddhi accounts with access to credit and digital infrastructure to monitor and model risk,” Janakiram added.

Credit access

A research study undertaken by Prasanna Tantri, Executive Director, Centre for Analytical Finance, Indian School of Business, also underscores the need to take the scheme to the next level.

“My research has shown that the programme has made a significant positive difference to the economic lives of the poor. The movement of account balances during the pandemic shows that poor households have used these balances during difficult times. In the next stage, the government should focus on improving access to formal credit to the poor,” said Tantri.

As per the structure of the scheme, PMJDY beneficiaries in the age group of 18-65 are eligible for an OverDraft (OD) of ₹10,000.

However, no information is available about the status of overdrafts. The government also announced a group loan scheme for PMJDY beneficiaries a couple of years ago.

“I am not sure about the status of those loans. Instead of focussing on newer plans to push credit, the government will do well to make sure that the information about PMJDY accounts is made available to credit bureaus and, more importantly, to the emerging fintechs,” said Tantri.

There is rich information in the transaction pattern, the nature of the transactions, the quantum of balance, the sources of funding, and the timing of transactions, which will enable the development of a credit score for PMJDY account holders.

The government may take the initiative in this regard by asking credit bureaus to work on it. Once a score is developed, formal private credit is likely to follow, said Tantri, adding that the 44 crore PMJDY beneficiaries could serve as an attractive market for fintechs.

Financial education

The government can also think of a financial education programme for PMJDY beneficiaries. It appears there is a permanent component of savings in savings accounts. The savers can earn more by converting some of the balances into fixed deposits.

According to RBI Governor Shaktikantha Das, financial inclusion in the country is poised to grow exponentially, with digital-savvy millennials joining the workforce, social media blurring the urban-rural divide, and technology shaping the policy interventions. Going forward, there needs to be greater focus on penetration of sustainable credit, investment, insurance and pension products by addressing demand-side constraints with enhanced customer protection, said Das in a speech in December 2020.

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Forex gains help RBI to give record Rs 99,122 crore dividend to govt, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) is paying a dividend of Rs 99,122 crore to the government, double than the Budgetary Estimates, which will help the government tide over the revenue losses from lockdowns and extend more support to the pandemic hit industries and the poor people.

Analysts had factored in a dividend of Rs 65,000 crore from the RBI, while the government’s budget estimates included Rs 45,000 crore surplus transfer by the central bank. In fiscal 2020, the RBI had paid only Rs 57,128 crore in dividend.

How the funds came

The higher payout followed the Bimal Jalan panel report that had set a new economic framework capital buffer for the central bank along with the contingency risk buffer at 5.5 per cent.

“In our view, the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the central bank — the RBI recently allowed itself to book profits on its FX transactions from a weighted average cost perspective,” Barclays India said in a report.

This move could have helped the central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the central bank’s income for the year, the report authored by Barclays India chief economist Rahul Bajoria said.

The dividend announcement will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal year. This could be particularly helpful in alleviating the impact of the second Covid wave, it said.

Fight against Covid

The record dividend payout will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal. This could be particularly helpful in alleviating the impact of the second wave, Bajoria added.

Aditi Nayar, the chief economist at Icra Ratings, said this considerably higher surplus transfer will offer the government a buffer to absorb the losses in indirect tax revenue that are anticipated in May-June due to the impact of the lockdowns on the level of consumption on discretionary items and contact-intensive services.

“Moreover, high commodity prices at a time when demand and pricing power are subdued will dent the margins of corporates in many sectors, compressing the growth in direct tax collections,” Nayar warned and said this higher dividend will help cushion some of this revenue shock.

After this dividend payout for the accounting period of nine months ending March 2021 (July 2020-March 2021), the RBI is left with a contingency risk buffer at 5.50 per cent of its capital.

Increased spending

Barclays said the government has flexibility now to increase support to the economy while maintaining its fiscal deficit estimate at 6.8% for FY21-22,

“So far, in response to the second Covid wave, the government has reinstated the free food distribution scheme, which should assist 80 crore people, and set aside a budgetary allocation of Rs 26,000 crore for incremental spending. Further, given the rising demand for the government’s rural job scheme, we see some likelihood that spending on the job guarantee scheme could increase further this year. Recent media reports also indicate that the finance ministry is likely working on further relief measures to support the economy,” it said.



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Rs 99,000-crore booster: Bumper dividend for govt from RBI

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A larger number of OMOs results in higher interest income for the RBI. The annual report, when released, could offer greater clarity on this.

The Reserve Bank of India (RBI) on Friday said it will transfer a surplus of Rs 99,122 crore to the government for the nine-month period ended March 31, 2021, 73.5% higher than the Rs 57,128 crore transferred for 2019-20.

With the change in the central bank’s accounting year to April-March from July-June earlier, its board discussed its functioning during the transition period of nine months (July 2020-March 2021) and approved the annual report and accounts for the transition period.

“The Board in its meeting reviewed the current economic situation, global and domestic challenges and recent policy measures taken by the Reserve Bank to mitigate the adverse impact of the second wave of Covid-19 on the economy,” the RBI said in a release. The central board decided to maintain the contingency risk buffer at 5.5%.

It was not immediately clear what contributed to the surge in the quantum of dividend transfer, but a likely reason could be higher earnings from RBI’s market operations during the year. RBI governor Shaktikanta Das said during the April monetary policy review that the central bank had made net outright purchases amounting to ₹3.13 lakh crore during 2020-21. A larger number of OMOs results in higher interest income for the RBI. The annual report, when released, could offer greater clarity on this.

The Union government had budgeted a total Rs 1 lakh crore worth of earnings by way of total dividend from RBI and public-sector enterprises in FY22. The quantum of the RBI’s surplus transfer will likely ensure that the government exceeds its revenue target under this head.

Aditi Nayar, chief economist, Icra, said the higher-than-budgeted surplus transfer will offer a buffer to the government to absorb the losses in indirect tax revenues that are anticipated in May-June 2021. Tax revenues could take a knock from the impact of the now widespread state lockdowns on the level of consumption on discretionary items and contact-intensive services.

“Moreover, high commodity prices at a time when demand and pricing power are subdued, would dent the margins of corporates in many sectors, compressing the growth in direct tax collections,” Nayar said.

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South Indian Bank posts net profit of nearly ₹7 crore in Q4

Banking & Finance

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South Indian Bank has registered a net profit of ₹6.79 crore in the fourth quarter of FY21 against a loss of ₹143.69 crore during the corresponding period of the previous year. The net profit for the entire FY21 is ₹61.91 crore as against ₹104.59 crore of the previous financial year.

Murali Ramakrishnan, Managing Director & CEO said the lower quarterly profit was mainly on account of credit cost on the fresh slippages during the fourth quarter, as a result of additional stress in the economy due to Covid-19 pandemic. “Bank has strengthened the review and monitoring system of the advance portfolio to improve the credit quality and thereby bringing drastic reduction in the slippages and improve upgrades/ recovery,” Ramakrishnan said.

Vision 2024

The bank has come up with a 3-year Medium Term Strategy (Vision 2024) wherein the focus will continue in the areas of MSME and Retail Loans with improved underwriting standards. The technology initiatives will be leveraged to improve the CASA and the technology income in the coming quarters.

The prevailing Covid-19 pandemic has impacted the growth in the business and personal loan segment. “As part of the business strategy to reduce the exposure in the corporate advances, the bank has brought down the share of corporate advances from 28 per cent as on March 31, 2020 to 25 per cent as on March 31,” he said.

The bank has also been able to meet the targeted levels of recovery/ upgrades which has helped in containing the GNPA level despite higher slippages numbers during the year on account of the pandemic. The provision coverage ratio has improved to 58.73 per cent from 54.22 per cent.

The Capital Adequacy Ratio stands comfortable at 15.42 per cent as on March 31. The bank has raised the equity capital during the quarter for an amount of ₹240 crore which strengthened the Common Equity. “The bank plans to raise further capital during FY21-22 to strengthen the capital base,” he added.

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RBI to transfer Rs 99,122 crore to government as surplus, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India on Friday approved for a transfer of Rs 99,122 crore as surplus to the government for the accounting period of nine months ended March 31.

The central board of directors of RBI in a virtual meeting took the call and decided for surplus transfer.

The board has also reviewed the current economic situation, global and domestic challenges and recent policy measures taken by the Reserve Bank around the impact of second wave of Covid-19 on the economy.

The change in RBI’s accounting year to April-March from earlier June-July the board also discussed the working of the RBI during the transition period of nine months.

“The Board also approved the transfer of Rs 99,122 crore as surplus to the central government for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021), while deciding to maintain the Contingency Risk Buffer at 5.50 per cent.”

Deputy governors Mahesh Kumar Jain, Michael Debabrata Patra, M Rajeshwar Rao, T Rabi Sankar attended the meeting.

Other directors of the Central Board, N Chandrasekaran, Satish K Marathe, S Gurumurthy, Revathy Iyer and Sachin Chaturvedi attended the meeting.

Debasish Panda Secretary, Department of Financial Services and Ajay Seth, Secretary, Department of Economic Affairs were also a part of the meeting.



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IDBI replaces CFO over RBI’s CA diktat, BFSI News, ET BFSI

Banking & Finance

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Mumbai: IDBI Bank on Thursday said that it has appointed executive director P Sitaram as chief financial officer (CFO) and key managerial personnel of the bank. The appointment follows the RBI’s direction to ensure adherence to the minimum qualification criteria for the position of CFO. Sitaram is a qualified chartered accountant and has over 15 years of experience in handling finance and accounts and taxation matters in IDBI Bank.

The RBI’s directive to banks to appoint qualified CAs as CFO is compelling banks to cast a wider net in their search for candidates. Besides the academic qualification, RBI requires the CFO to have 15 years of experience in overseeing financial operations such as accounting and taxation and most of it in a bank or financial institution.

SBI had appointed former EY partner Charanjit Surinder Singh Attra as CFO in September last year after advertising for the position. The bank had offered an annual cost to the company of Rs 75 lakh to Rs 1 crore which was almost thrice of what the chairman earned at that time.

The RBI too hired laterally for the CFO position. The central bank had appointed Sudha Balakrishnan a CA and former director with National Securities Depositories Limited (NSDL) as its CFO in 2018.

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HDFC Bank’s credit card base shrinks by 3L during Dec-Mar

Personal Finance

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According to an HDFC Bank official who spoke on condition of anonymity, the lender is gearing up to return to the market once the regulatory penalty is reversed.

The Reserve Bank of India’s (RBI) embargo on sourcing of new credit card customers by HDFC Bank may have started to affect the lender’s card base. According to data released by the central bank, the number of credit cards outstanding at HDFC Bank fell by about 3.23 lakh between December 2020 and March 2021 to 1.5 crore.

The lender has long been the market leader in terms of cards in circulation as also spends, but the RBI’s decision to penalise the lender for lapses in its digital services may be slowing down the growth. It was not immediately clear whether the card base shrank due to a churn in cards or a conscious weeding out of inactive cards by the bank. Queries sent to the bank remained unanswered till the time of going to press.

ICICI Bank may turn out to be the biggest beneficiary of HDFC Bank’s absence from new issuances. In March, it continued to lead in fresh issuances, accounting for nearly 52% of new cards, showed data released by the RBI. The total number of new credit cards issued during the month stood at 4.02 lakh.

According to an HDFC Bank official who spoke on condition of anonymity, the lender is gearing up to return to the market once the regulatory penalty is reversed. “We are using this time to build up our liability base and keep our system ready to hit the market once the embargo is lifted,” he said. Historically, the bank has issued a majority of its credit cards to its own deposit holders.

During a call with analysts after HDFC Bank’s Q4FY21 results, the management said it had opened about 2 million new liability relationships in the March quarter and about 7 million liability during the full year. It has more than 2.5 million corporate salary customers during the year.

Chief financial officer Srinivasan Vaidyanathan said the bank is continuously investing in increasing spends, depth and width, revolve behaviours, product upgrades, line enhancements and loans on cards. “The impact of the non-issuance of cards is on new employees in corporates, new corporates on-boarding, etc. This loss of new customers can normally be made up within a few quarters of stoppage being lifted, since the bank continues to source liability customers who will be pre-approved,” he said, adding, “About three-fourths of our sourcing comes from existing customers of the bank.” In the meantime, the lender is focused on engaging with existing card customers who are dormant or inactive in order to “resuscitate” them.

So far, analysts have been hopeful about the bank’s ability to bounce back in its traditional area of strength. After the Q4 results, Kotak Institutional Equities said in a note, “Overall, we have not seen any business impact as the liability franchise is holding up well. The bank is working with its existing credit card base to generate business currently, but this issue would have an impact in the medium term if not resolved soon.”

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RBI imposes ₹1 cr penalty each on CUB and TMB

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The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹1 crore each on City Union Bank (CUB) and Tamilnad Mercantile Bank (TMB).

In the case of CUB, the RBI, in a statement, said the penalty has been imposed for contravention of/ non-compliance with certain provisions of the Reserve Bank of India (Lending to Micro, Small & Medium Enterprises Sector) Directions, 2017 and the circulars on Educational Loan Scheme and Credit Flow to Agriculture – Agricultural Loans – Waiver of Margin/ Security Requirements.

In the TMB case, RBI imposed the penalty for non-compliance with some directions regarding “Cyber Security Framework in Banks”, 2016.

In both the aforementioned cases, the central bank said: “The penalty has been imposed in exercise of powers vested in RBI under the provisions of …the Banking Regulation Act, 1949.

“This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.”

Meanwhile, RBI has imposed a Rs 90 lakh monetary penalty on Ahmedabad-based Nutan Nagarik Sahakari Bank.

The penalty has been imposed for non-compliance with directions contained in Master Directions on ‘Interest Rate on Deposits’, ‘Know Your Customer (KYC)’ and Circular on ‘Frauds Monitoring and Reporting Mechanism’, RBI said in a statement.

“This penalty has been imposed in exercise of powers vested in RBI under…the Banking Regulation Act, 1949.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” RBI said.

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Released liquidity may help banks to subscribe to G-Secs

Banking & Finance

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Liquidity released on account of purchase of Government Securities (G-Secs/GS) aggregating ₹35,000 crore by the Reserve Bank of India (RBI) on Thursday may encourage banks to subscribe to G-Secs aggregating ₹32,000 crore at Friday’s scheduled auction.

Market participants offered to sell seven G-Secs aggregating ₹1,21,696 crore against the notified amount of ₹35,000 crore RBI wanted to buy under the second tranche of its G-sec Acquisition Programme (G-SAP 1.0).

RBI accepted offers for six G-Secs aggregating the notified amount. It rejected all the offers for 7.95 per cent GS 2032.

The Central bank purchased the benchmark 5.85 per cent GS2030 under G-SAP at ₹99.26 (yield: 5.9526 per cent) against the previous close of ₹99.10 (5.9749 per cent). Bond prices and yields are inversely related and move in opposite directions.

Stable and orderly evolution

Under G-SAP, the RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Meanwhile, the central bank decided to conduct a 14-day Variable Rate Reverse Repo auction for a notified amount of ₹2-lakh crore under its Liquidity Adjustment Facility on May 21.

The aforementioned auction is conducted by RBI to suck out excess liquidity from the banking system.

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